Myth 3: Taxing the rich stops investment

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Myth 3: Taxing the rich stops investment


One economic myth of neoliberalism is: private business brings more money; taxation brings less. So if we tax less, we get a richer country. Competition between societies to cut tax gets more investment and creates wealth.

But in reality, if we didn’t have public education, healthcare, infrastructure and employment, private business would not be able to work. Taxation creates wealth as much as private business. Tax ‘wars’ that compete to get lower and lower taxes have more cheating, and can destroy societies or make them poorer. Clever investors – and rich people – know this. The idea that it is only good to invest where they pay less tax is nonsense.

❛As a businessman I never made an investment decision because of how little the tax is. If you are giving money away I will take it. If you want to help me with for something I am going to do anyway, I will take it. But good businesspeople do not do things because of less tax.❜ Paul O’Neill, former chair of Alcoa

So what is the right level or kind of taxation? That is a political, not economic, question. In a democracy, it is usually fairer. ‘Progressive’ tax is when the rich pay more. ‘Regressive’ tax, eg. tax on buying things (VAT, GST etc.)is when everyone pays the same.

Sweden, Norway and Denmark are famous for having the highest, most progressive tax in the world. But they are also the richest, most successful societies. In the financial crisis in 2008, Sweden increased tax to 60 per cent, and most Swedish people were happy to pay. So progressive taxation does not stop the economy.

Neoliberalism means there is more regressive taxation and cheating. There are many tax consultants to pay, and very complicated tax havens. Rich businesses make more money from this than paying tax. The very richest pay no tax at all. Everyone else is paying tax for them.

We can see this clearly in the Great Recession. Governments have to borrow more money or go into debt because they don’t get enough money from tax. In a recession, they get less money from tax. If they increase tax, this could make it worse, but it could also make things worse by cutting public spending. This is a political choice.

❛Every country sets its own tax rates, but I think in a world of global capital, in a world where we’re competing with each other, in a world where we want to send a message that we want you to build businesses, grow businesses and invest, I think it’s wrong to have too high tax.❜ David Cameron, British Prime Minister

Britain has cut taxes on businesses and for rich people. And VAT has increased a lot. You often see tax wars and regressive taxation with ‘austerity’. But they’ve done nothing to encourage investment. At the end of 2014, investment fell more than at any time since 2009; already lower than in the rest of the European Union, it has been falling all the time since 2009.

We don’t have to have neoliberal tax regimes. There are other ways. For example, we could look at private wealth – business and personal – not income. Thomas Piketty estimates that most governments now have no wealth at all. Their debts are about the same as their assets. But private assets are six times greater than private debts. If we had a tax of 15 per cent on private assets, he suggests, this would bring nearly a year’s worth of national income – and we would be able to pay all public debt.

Piketty does not think we will have a tax like this soon. There are also taxes on financial speculation eg. the ‘Tobin’ tax on currency deals. Both of these would help find solutions to persistent economic problems.

Some people say fairer tax regimes are not very realistic. Others say that neoliberal tax regimes rely on myths and propaganda. In reality, quite modest taxes on wealth would produce more than enough resources to stop the Great Recession. That might even please the clever investors.

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